The volatility of asset class returns is not constant over time. Similarly, traditional strategies aiming to capture factor premia also show variable volatility over time. Constant volatility approaches can be successful ways to exploit these anomalies, also when applied to factor investing.

Risk parity strategies have been great for the last 20 years, profiting from the fall in interest rates and the capital gains it’s generated while avoiding the poor performance of equities. The question now is whether it still makes sense with interest rates having fallen to zero?

Many investors became accustomed to earning attractive returns with hardly any risk from investing in money markets, but with interest rates now lingering near all-time lows, they have little choice but to take more risk to earn anything like an appealing yield.

Low-volatility equities are playing an important role in investor portfolios. Here we address the important question of what expected returns and volatility assumptions should be used in order to determine their allocation.